Ask any journalist on the retail beat and they will support the premise that retailers are up against fierce competition, thin margins and heightened consumer expectations. That said, they can also point you to success stories of retailers boosting sustainable growth amid such an intense market.
In the January–February 2017 issue of the Harvard Business Review, industry analysts Marshall Fisher, Vishal Gaur and Herb Kleinberger submit that the correct strategy may be for retailers to stop chasing the ‘wrong kind of growth and expansion’. They examined the financial data of 37 US retailers with recent sales of at least $1 billion who also displayed a dip in sales growth (to single digits) between 2011 and 2015.
The study found that the 20 least successful retailers were chasing growth by opening stores, often beyond the point of seeing a return on their investment. The 17 best-performing retailers had instead invested in operational improvements to their existing stores. Overall, this group increased their revenues at a faster rate than their expenses.
Here are some examples of operational strategies that worked.
Home Depot: new product development
After growing to be the second-biggest retailer in the US, Home Depot’s in-store sales started to lag behind its competitors’. After management effected a paradigm shift in its approach starting in 2007, financial results have soared. An important pillar of the change has been the development of private-label products: Home Depot identifies poorly performing brand-name products and analyses customer data in relation to these items to develop its own replacements, continually refining them on quality and price until they successfully compete with competitors’ offerings.
Best Buy: omnichannel offering
Savvy modern retailers understand the importance of an omnichannel strategy. When you provide customers with additional product information, streamlined ways to buy online and pick up in-store, and discounts that meet them where they are, both in-store and online sales get a boost. Best Buy tackled declining profits in part by improving its website and apps to make all of this easier. They also sought to match the prices of online competitors such as Amazon. ‘We don’t see ourselves as a brick-and-mortar retailer,’ says Best Buy chief executive Hubert Joly, ‘we’re a multichannel retailer.’
Patagonia: data-driven for success
It’s a new world, and exploiting data effectively is becoming more of a given. If they know how to use it, the smartest retailers collect data on the whole process, from supply chain to post-purchase, in order to make decisions based on cold, hard numbers instead of guesswork. Examples of using the figures to create personalised customer experiences abound. Patagonia, admired for its environmental ethos, has shown its tech expertise by using historical data to forecast demand and thereby minimise supply chain waste.